We are sad to report that The Nasdaq Composite was unable to trade back above 5,000 today…

An early dip into the red for the week was rescued, then another dip after Europe closed took all but The Dow into the red for the week… but then as the USD strengthened and bonds sold off, stocks rallied to end green for the week…

But closed red on the day

Today’s weakness started in the European session as selling the QE news and Greek funding issues, extended when US opened (unusually) and then extended losses as Bibi spoke… the lows were put in as Europe closed…

VIX jumped the most in 3 weeks back above 13 once again… (toipping 14.6 intrday)Hubris Hangover?

Bonds and stocks have recoupled from the Yellen dovishness and Actavis rate-lock pressure…

Treasury yields trod water for most of the day but pushed higher in the afternoon – now up a notable 12-14bps on the week (2Y +6bps) and steeper…

The USDollar ended the day modestly lower, following a similar SELL EUROPE, BUY US pattern to unchanged for the week… Swissy is being sold this week and SEK notably bid…

The Brazilian real was monkey-hammered once again – now down 3.2% in the last 2 days to fresh 11-year lows over 2.9330

Commodities were mixed with prices charts looking more and more like EKGs than ever… Note the drop as China opened in all commodities… Silver and oil are now anti-correlated once again…

Crude did what it does – this time was a dump-and-pump as we await the API inventory data (dump if history is right)…

As the world awaits to see if following his speech, Israel’s PM will now proceed with launching a full on assault on Iran just to show he means business, or at least stage yet another false flag intervention to greenlight war in the middle east, several hundred kilometers to the northeast, the biggest offensive in the “war on ISIS” is now taking place after thousands of Iraqi soldiers and Shi’ite militiamen seek to retake the northern Iraqi town and birthplace of Saddam Hussein, Tikrit.

As previously reported, U.S. officials said last month that plans are afoot for a massive operation to recapture Mosul from ISIS — probably this spring — but wresting Tikrit from the militants beforehand is seen as critical given the city’s strategic location. The question is whether third time will be the charm, er, offensive: Iraq’s security forces have tried repeatedly — in June, again in August — to retake Tikrit but made little headway against the militants. This time may or may not be different, with a key variable being whether US air support will be granted to the local “resistance” fighters.

According to Reuters, Iranian military commander Qassem Soleimani, who has helped coordinate Baghdad’s counter-attacks against Islamic State since it seized much of northern Iraq in June, was overseeing at least part of the operation. In other words, the same Iran that was being vilifies in Congress is now fighting on behalf of the US-led “alliance”, to eradicate the same terrorists which according to some, have seen a substantial Mossad influence in their appearance. Ironic.

As Reuters puts it, the Iranian’s presence on the frontline highlights neighbouring Iran’s influence over the Shi’ite fighters who have been key to containing the militants in Iraq.

In contrast, the U.S.-led air coalition which has been attacking Islamic State across Iraq and Syria has not yet played a role in Tikrit, the Pentagon said on Monday, perhaps partly because of the high-level Iranian presence. Iraqi military officials said security forces backed by the Shi’ite militia known as Hashid Shaabi (Popular Mobilisation) were advancing gradually, their progress slowed by roadside bombs and snipers.

Adding to the confusion, on the southern flank of the offensive, army and police officials said government forces had surrounded and sealed off al-Dour, but had not yet launched an assault on the town, a source in military operations command said. To the north, they captured a village close to Tikrit, the army said.

More confusion: we now have a war against a stateless enemy that has seen Iraqi and Iranian soldiers fighting side by side:

Soleimani, head of the Iranian Revolutionary Guards Quds Force, was directing operations on the eastern flank from a village about 55 km (35 miles) from Tikrit called Albu Rayash, captured from Islamic State two days ago.

With him were two Iraqi Shi’ite paramilitary leaders: the leader of the Hashid Shaabi, Abu Mahdi al-Mohandis, and Hadi al-Amiri who leads the Badr Organisation, a powerful Shi’ite militia.

“(Soleimani) was standing on top of a hill pointing with his hands towards the areas where Islamic State are still operating,” said a witness who was accompanying security forces near Albu Rayash.

Perhaps he is also pointing to where he hopes Iran borders will stretch in the coming years? Although before crossing that bridge, ISIS ground soliders will have to be repelled from a city which they are fiercely guarding and in which they have been strongly fortified:

The offensive is the biggest in the Salahuddin region north of Baghdad since last summer, when Islamic State killed hundreds of Iraqi army soldiers who had abandoned their base at Camp Speicher outside Tikrit.

Several Shi’ite Hashid Shaabi fighters have described this week’s campaign – which has been given the title “Here I am, Messenger of God” – as revenge for the Speicher killings. Prime Minister Haider al-Abadi has urged them to protect civilians in Salahuddin, a mainly Sunni Muslim province.

And while Tikrit itself is irrelevant, the battle “will have a major impact on plans to move further north and recapture Mosul, the largest city under Islamic State rule.”

If the offensive stalls, it will complicate and delay a move on Mosul. A quick victory would give Baghdad momentum, but any retribution against local Sunnis would imperil efforts to win over Mosul’s mainly Sunni population.

To the west of Mosul, Islamic State fighters attacked Kurdish forces in the town of Sinjar on Monday, a senior peshmerga source said. Nine peshmerga and 45 militants were killed in the fighting, which began with a suicide car bomb in the Nasr quarter of the town.

Islamic State “want to show people they can still attack and inflict losses on the peshmerga”, the source said. Kurdish forces currently control around 30 percent of the town of Sinjar, as well as the hills to the north and the mountain overlooking it.

As noted above: much confusion all around since pretty much everyone in the middle east is now somehow involved in this war on Iraqi/ISIS soil, so to provide some clarity, here is a simple map showing who controls what in this latest diversionary war designed merely to get Syria’s president committed so the US has a legitimate pretext to obliterate him.

The manual received so much publicity from Associated Press, Washington Post and other media that – during the 1984 presidential debate – President Reagan was confronted with the following question on national television:

At this moment, we are confronted with the extraordinary story of a CIA guerrilla manual for the anti-Sandinista contras whom we are backing, which advocates not only assassinations of Sandinistas but the hiring of criminals to assassinate the guerrillas we are supporting in order to create martyrs.

Just a day after Blackrock saw its biggest Bond ETF outflows in history ($525.8 million pulled on Monday), Actavis sold $21 billion of almost-junk ‘BBB-’ rated debt (at a minsicule yield of only 3.5%) in the 2nd largest bond issuance ever (2nd only to Verizon’s massive $49 billion deal in 2013). The issue was oversubscribed 4.5x (around $90bn in the order book) as a ten-part offering varying from 18-month floaters to 30Y fixeds all went off below guidance. With Treasury liquidty disappearing fast, one wonders just how much rate-locking on this massive deal was responsible for a net short overhang on the Treasury complex the last few days…

Record ETF outflows on Monday…

Investors pulled $525.8 million from BlackRock Inc’s iShares Core U.S. Aggregate Bond ETF on Monday, the company said on Tuesday.

Monday’s outflow was the biggest in the history of the exchange-traded fund, which launched in 2003 and has about $24 billion in assets.

Didn’t stymie professional demand for the Actavis deal…as Bloomberg reports,

Actavis sold debt in a ten-part offering. Order book said to have been about $90b

“The Treasury Department is constantly monitoring liquidity across all financial markets,” spokesman Adam Hodge said in an e-mail. “The Treasury market is the deepest and most-liquid market in the world and we are committed to ensuring that it remains that way.”

For decades, the $12.5 trillion market for U.S. government debt was renowned for its “depth,” Wall Street’s way of talking about a market’s ability to handle large trades without big moves in prices. But lately, that resiliency has practically vanished — and that’s a big worry.

Less depth has meant greater volatility. So Treasuries — the world’s haven asset during turmoil — may be prone to more disruptions, particularly as the Federal Reserve prepares to raise interest rates. And if investors begin to doubt whether they’ll still be able to buy and sell on a moment’s notice, that has the potential to elevate the U.S.’s cost to borrow.

How much depth has the market lost?

A year ago, you could trade about $280 million of Treasuries without causing prices to move, according to JPMorgan Chase & Co. Now, it’s $80 million.

…

“There aren’t enough bonds on the planet to satisfy all the buying,” said Charles Comiskey, the New York-based head of Treasury trading at Bank of Nova Scotia, a primary dealer.

Leaving one to wonder just how much of the Treasy yield complex weakness of the last 3 days was due to underwriters locking in interest rates on $21 billion debt issuance…

Wait, I thought only the Republican Party was being torn asunder by a rift between the establishment middle and the fringe. That impression was nailed down, again, last week by the embarrassing fracture among House Republicans over funding for the Department of Homeland Security.

But don’t forget last Tuesday’s Chicago primary in which incumbent Rahm Emanuel, the so-called establishment candidate, was forced into a runoff election for mayor with progressive Cook County Commissioner Jesus “Chuy” Garcia.

Observers on the right and left expect that Garcia’s unexpected success bodes well for progressives and is bad for moderate, establishment Democrats. That includes “centrist” (I don’t necessarily agree with the label) and president-in-waiting Hillary Clinton.

They see an uprising among progressives that’ll energize the drive to draft the far-left Sen. Elizabeth Warren, D-Mass., to challenge Clinton. Suggesting that a national movement is afoot to cleanse the Democratic Party of centrist heretics, they also point to the election of New York Mayor Bill (“I’m a progressive, don’t call me liberal”) de Blasio. Others said last year’s election of labor-backed Ras (“We are the mayor”) Baraka as Newark, N.J., mayor energized progressives.

Locally, left-wing Democrats have draped their mantle over the shoulders of Garcia. That’s happened even though, after reading his answers to the Tribune’s Candidate Questionnaire, I wouldn’t call him the perfect progressive. The Illinois branch of MoveOn.org (the left’s noisy equivalent of the right’s tea party) endorsed Garcia. The Chicago Teachers Union and assorted progressive activists credit themselves for Garcia’s unexpectedly strong showing and their successes in several alderman races.

So, yes, there is a fissure within the Democratic Party, between the establishment types and progressives.

So what? Frankly, I don’t care about whatever splits are ripping apart whatever political party. More important than political process is the substance of the issues — the incredible, shrinking city of Chicago.

At least give Emanuel credit for trying to confront the city’s calamitous deficits and debt. Give Garcia and his supporters a thumbs down for not only failing to try to provide some realistic, convincing answers, but for wanting more of the same policies that are sinking the city and the schools.

How dare Emanuel close down 50 Chicago schools! Keep them open, but don’t ask how to pay for them. How dare Emanuel face the real problem of government labor costs! Pretend that the Chicago Public Schools don’t have to find $688 million in pension payments in fiscal 2016. Hey, get rid of those red light cameras; they’re only there to make a bundle of money for the city! Jump on Emanuel for finding sneaky ways to increase revenues without raising property taxes. Applaud Garcia when he promises no property tax increases.

In this, progressives are true to form. Pain avoidance is a priority. More and costly programs are desperately needed. Instant gratification trumps the long-term common good. Saving for our children’s future is inconsequential.

Emanuel and Garcia, the latter especially, are criticized for not coming up with a better solution. Few commentators have great ideas, either. The problems have become too mind-boggling. Turning over all the tax increment financing, or TIF money, that has been salted away won’t do it. New and higher taxes will fall short. Promises of “operating more efficiently” are hollow. The idea of a state bailout from nearly bankrupt Illinois is preposterous. Don’t even look to Washington.

There’s a reason no one is putting forth a realistic solution: There is none.

Chicago is too far in over its head to dig itself out. The only solution is the one whose name may not be spoken: bankruptcy.

It worked in Detroit. Last December, it emerged from what was the nation’s largest municipal bankruptcy after about 17 months of court supervision. Ironically, under bankruptcy, the city’s homicide rate, the highest in its history, dropped 18 percent, The New York Times reported. Police average response time dropped to less than 18 minutes, from 58 minutes. Replacement of the city’s streetlights — of which 40 percent failed to work — is in the offing. Detroit isn’t out of the woods yet, but it’s in a better place now than when there appeared to be no hope, none at all.

Rip Chicago’s finances out of the hands of the connivers, special interests and political opportunists and give them to a court-appointed manager to oversee the necessary reorganization. Start with Chicago Public Schools and, if necessary, throw in the entire stinking mess, called city of Chicago.

Might as well include the state of Illinois, too.

End Guest Post

Byrne is a Chicago Tribune contributing op-ed columnist and author of forthcoming historical novel, “Madness: The War of 1812.” Byrne is also a reporter, editor and columnist for Chicago Sun-Times and Chicago Daily News.

One can quibble over Emanuel’s accomplishments. And Emanuel certainly has his faults as the Tribune noted in an endorsement.

He failed to end Chicago’s crippling dependence on borrowing.

He continued Daley’s practice of issuing taxable bonds, stretching debt payments far into the future.

He pushed a $900 million borrowing plan through the City Council nearly three years after being elected.

He has been slow to respond to public outrage over that scandal-ridden traffic camera program.

Emanuel Jesus “Chuy” Garcia

When asked about the Chicago’s pension crisis, Garcia’s non-solution is even more problematic. Consider three statements made by Garcia in the Tribune’s Candidate Questionnaire.

This is a problem we created together as a City, and it is a problem that will require everyone’s participation to resolve. That said, I do not support cutting benefits for current retirees.

I believe in the right of collective bargaining and the important social policies that it reflects, and I would prefer to negotiate such changes with the elected union leadership.

I do not support a property tax rise to fund pensions, because I know too many families – and especially senior citizens — who are already struggling to pay their existing tax bills.

Garcia also wants to put more police on the street.

Apparently, this all magic because it will not involve tax hikes, at least property tax hikes. Nowhere does Garcia explain how he pays for his progressive position.

Simply put, Garcia is in Fantasyland.

The Problem and The Solution

Even with Chicago’s recent financial reforms and spending curbs, there’s a $300 million hole in the 2016 budget and a $550 million balloon payment for police and fire pensions due next year. The Chicago Public Schools system faces an unfunded pension obligation of more than $9 billion.

The problem is debt and untenable pension promises.

Someone needs to step up to the plate and admit the obvious:

Pension promises need to be cut.

The only way to cut pension benefits in a court-approved manner is bankruptcy.

Nothing else works. Unions will fight every other attempt, just as they have done now.

Say the Word!

Bankruptcy is the word no one wants to say, but eventually bankruptcy will be thrust upon Chicago.

Detroit would have been in recovery years ago had it taken that action years ago. Instead, every mayor of Detroit fought bankruptcy for a decade or more after it was perfectly obvious that bankruptcy was in the cards.

Every delay made matters worse.

Hopefully Chicago will not suffer the same sad fate of delay after delay accompanied with crumbling infrastructure.

Only hours ago, Gallup released a new poll showing that only a small minority (just 17%) of Americans still view the US as the world’s economic superpower.

Echoing former US Treasury Secretary Larry Summers’ quip, “There is surely something odd about the world’s greatest power being the world’s greatest debtor,” it appears that economic reality is finally beginning to set in for Americans.

Yes, it turns out there are consequences when you habitually indebt future generations in order to buy bombs, drones, and body scanners.

There are consequences when you regulate every aspect of society, from how much people can earn on their savings, to what they can/cannot put in their own bodies.

The decline of the United States as the world’s dominant superpower was always inevitable. No nation or empire can hold the top spot forever.

History is full of examples of once-dominant superpowers that have declined (and even collapsed altogether).

Italy was the center of power and wealth in the world, not once but twice. France. Spain. England. Many nations have had their time as #1. The US is no different.

While many Americans are starting to realize that this is happening, what many probably don’t realize is what else happens as a result.

The last 2,000 years of global finance shows that the dominant superpower generally sets the global reserve currency.

Early civilizations used the Byzantine gold solidus for centuries given that the Byzantine Empire was the dominant power at the time.

But as Byzantium’s power rapidly faded, the government played dangerous games with their currency, prompting the rest of the world to find an alternative.

Italy rose to the occasion. As the most prominent rising power in Europe’s early renaissance, ducats and florins quickly replaced the solidus as the dominant reserve currency.

Spain’s later rise to power saw the ‘real de ocho’ dominate global trade. Britain’s rise to power in the 19th century saw the pound sterling become the supreme global currency.

And for the last seventy years, the US dollar has been the world’s dominant reserve currency.

Make no mistake—as US power shifts, so will the dollar’s reserve status. And this changes everything.

The dollar’s reserve status is why so many foreigners buy US government debt despite its extreme level.

It’s why the Federal Reserve’s balance sheet can explode by 500% without hyperinflation gripping the nation.

It’s why Americans can borrow at absurdly low interest rates in order to finance a higher standard of living that they wouldn’t otherwise be able to afford.

All of this goes away as US power wanes. And folks who don’t see the trend coming will probably see their lives turned upside down.

But this doesn’t mean the world is coming to an end. It’s not. The world is changing. And rapidly.

This is not some doom and gloom scenario. On the contrary, it’s ridiculously exciting. Great change brings about great opportunity for anyone who is willing to look at the big picture.

On one hand, it’s important to protect what you’ve got. A major change in the reserve currency will bring about significant turmoil in the financial system.

We could easily see multiple currency crises, bank failures, and capital controls.

But there are some simple, rational steps you can take to ensure you’re not a victim.

If your country is flat broke, then move a portion of your savings offshore to a strong bank in a country with no debt. Simple.

Likewise, move a portion of your retirement funds abroad to a safe place where your insolvent government can’t “help you” manage it.

Definitely put on your seatbelt. Develop a Plan B.

But then once your livelihood is secure (here’s the best part), look forward to the incredible business, investment, and lifestyle opportunities that will come from this great change.

Just imagine how prosperous you would have become if you had known what was to come in Rome before 476? Or France before 1789? Or the US before…?

There will be chances to build generational wealth betting on these big trends… for those who are willing to be a few years early rather than a minute too late.

While every other word from talking-heads and policy-makers relates various anecdotes (or simple lies) about US economic growth, The Atlanta Fed appears to have taken a ‘data-dependent’ perspective on the real economy (as opposed to smoke and mirrors). Based on their GDPNow “nowcasting” model, The Atlanta Fed projects Q1 2015 GDP growth os just 1.2% (less than half current sell-side economist consensus) and getting weaker…

The growth rate of real gross domestic product (GDP) is a key indicator of economic activity, but the official estimate is released with a delay. Our new GDPNow forecasting model provides a “nowcast” of the official estimate prior to its release.

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2015 was 1.2 percent on March 2, down from 1.7 percent on February 26. The nowcasts for first-quarter real residential and nonresidential structures investment and for real state and local government spending all declined following this morning’s construction spending release from the U.S. Census Bureau.

* * *

This forecast from The Atlanta Fed is less than half consensus… and not even we were bearish enouogh….

The following video of LAPD officers gunning down a homeless man in broad daylight is rightly getting a lot of attention. It’s not as if it was one officer dealing with a dangerous situation who panicked. There was a mob of police officers surrounding the victim, and rather than dealing with the situation like courageous, decent adults, they went ahead and treated the man like target practice.

As we see with oligarch theft, this is the sort of thing you can expect more of when certain above-the-law groups in society fail to be held accountable for their actions.

Just yesterday we warned that, among the ‘solutions’ the Greek government was exploring in its scramble for cash to pay back The IMF loan, was ‘borrowing’ from the nation’s pension funds. Today we get the sad confirmation that indeed Greece will raid cash reserves in pension funds and other public sector entities to cover its funding needs. As Reuters reports, Greece will use short-term repo transactions to transfer the cash, but one government official said they could not be used to repay the IMF. As the radical left-wing government takes from the implictly wealthier Greeks (pension funders), it is giving free electricity, a rent allowance, and food stamps to the poor.

As we warned yesterday, we are sure the Greek people will be enthused when they find out what the ‘radical left’ has in store for their funds… And as reuters reports, the raiding of Greek pension funds is now confirmed…

Greece is tapping into the cash reserves of pension funds and public sector entities through repo transactions as it scrambles to cover its funding needs this month, debt officials told Reuters on Tuesday.

Shut out of debt markets and with aid from lenders frozen, Athens is in danger of running out of cash in the coming weeks as it faces a 1.5 billion euro loan repayment to the International Monetary Fund this month.

The government has sought to calm fears and says it will be able to make the IMF payment and others, but not said how.

At least part of the state’s cash needs for the month will be met by repo transactions in which pension funds and other state entities sitting on cash lend the money to the country’s debt agency through a short-term repurchase agreement for up to 15 days, debt agency officials told Reuters.

However, one government official said they could not be used to repay the IMF unless Athens was able to repay the state entities the cash it borrowed from them.

* * *Tomorrow brings a regularly scheduled six-month T-bill auction of 875 million euros to refinance a maturing issue, in a sale that will be closely watched.

The draft contains measures among others for free electricity, rent- and food allowances. But also free access to health and public transportation means.

In particularly:

a) Free electricity for up to 300 KhW per household until the end of 2015. The measure refers to some 300,000 households and especially those already in the ‘social price policies program’ of PPC.

Fee-free reconnection of power to primary residence due to outstanding debts to the Public Power Company.

b) Rent-allowance of €70 – €220 per month for up to 30,000 households. The allowance will not be considered as ‘taxable income’ and will not be seized by the state for outstanding debts. However the allowance could be used to cover debt repayments to tax authorities and social insurance funds.

c) Food allowance for the supply of basic food and other items for 300,000 people. The allowance will be distributed through food stamps or some electronic means (‘smart card’ to be charged on weekly basis.)

The allowance-amount will vary depending on the number of the family members. The food and other basic good supplies will be provided by businesses and companies willing to participate in the program.

The government seeks to establish the food program in cooperation with the Greek Orthodox Church and the local municipalities.

Priority will be given to families with under-aged children, jobless and long-term unemployed, tenants under risk to be evicted and families who do not have access to these three basic goods: electricity, housing, food.

The criteria for the beneficiaries to participate in the program will be based on tax declarations and sources of income.

Main criteria is the “poverty line” which is considered “annual income of up to €5.023 per single household and up to €10,547 for a four-member family.”

According 2013-data of Greek Statistics Authority ELSTAT, 35.7% of Greeks live at risk of poverty and social isolation.